Beruflich Dokumente
Kultur Dokumente
Policy Paper 2
August 2005
Prepared for: Economic Policy Network His Majesty's Government of Nepal/ Ministry of Finance Singha Durbar, Kathmandu, Nepal Tel: 977-1-4211353 E-mail: epn@mof.gov.np Website: www.mof.gov.np and Asian Development Bank Nepal Resident Mission Srikunj, Kamaldi, Ward No. 31 P.O. Box 5017, Kathmandu, Nepal Tel: 977-1-4227779 Fax: 977-1-4225063 E-mail: adbnrm@adb.org Website: www.adb.org/nrm
Submitted by: Federation of Nepalese Chambers of Commerce and Industry (FNCCI) P.O. Box 269, Kathmandu, Nepal Tel: 977-1-4262061 Fax: 977-1-4261022 Website: www.fncci.org
This report has been prepared by Mr. Vidya Nath Nepal, Macroeconomic Specialist, under the guidance of the Federation of Nepalese Chambers of Commerce and Industries (FNCCI). Inputs from various stakeholders during interactions at FNCCI, the Advisory Committee meeting, and the workshop organized by the EPN Focal Unit have been incorporated in the report. The names of people met during the interactions are included in appendix 11 in this report.
Foreword Economic Policy Network (EPN) is an undertaking of His Majesty's Government of Nepal (HMG/N) since August 2004 with the support of an Asian Development Bank (ADB) technical assistance (TA) to develop and institutionalize an open, responsive and result oriented economic policy formulation process based on sound economic analysis and dialogues with the partnership of public and private sector, academia, and independent professionals, to support and consolidate the Government's economic policy reforms on poverty reduction strategy. The initial focus has been in the areas of macroeconomic management, trade, investment, employment, infrastructure, tourism, agriculture, and regional development through four thematic advisory committees chaired by the secretaries of the respective implementing ministries, and guided by a high-level steering committee. The present study is an outcome of the initiative under the Advisory Committee for Macroeconomic Management chaired by the Secretary of the Ministry of Finance. Enhancement of Nepalese exports is not only vital for narrowing the trade gap, but also important for sustaining the balance of payments, and for creating employment in the country. The paper analyzes the economic, legal, administrative, institutional, and policy constraints for export and makes recommendations for tax policy reforms and procedural simplifications to promote exports from Nepal. The recommendations are the outcome of consensus reached among major stakeholders through various consultations and the EPN workshop. I hope the findings and recommendations will be helpful for policy makers for future reforms. I would like to thank the Federation of Nepalese Chambers of Commerce and Industries (FNCCI) for leading the study, and Mr. Vidya Nath Nepal for carrying out the study on their behalf. I also thank all those who have provided inputs for the report during the interactions at FNCCI, the advisory committee meetings, and the EPN workshop. The work of the Advisory Committee for Macroeconomic Management is to be commended for selecting the issue and for following through with the study. I would also like to appreciate the entire EPN team for their hard work. I also thank the former Steering Committee chairperson (the then Chief Secretary of HMG/N) Dr. Bimal Prasad Koirala, for his guidance during his tenure. Last but not least, I would like to thank the ADB for supporting this initiative.
Dr. Champak Prasad Pokharel Member National Planning Commission His Majesty's Government of Nepal [ChairmanEPN Steering Committee]
Acknowledgement This study is commissioned as requested by the Federation of Nepalese Chambers of Commerce and Industries (FNCCI) with the financial assistance of Asian Development Bank (ADB) under Establishing Economic Policy Network Project, Ministry of Finance. Rhetorically, export is said to be the engine of growth in economic development literature. It is also proven that countries which have outward looking policies have developed faster than those which have inward looking policies. However, this is a very competitive affair. Therefore, competitors have been providing different kinds of incentives, sometimes, including subsides which is not allowed by WTO. Nepal's position is very weak in this connection whereas trade deficit have been alarming. Nepal has been facing problems both physically and policy wise. Therefore, His Majesty's Government of Nepal (HMG/N) has realized to reform their tax policy among other things, for promoting exports as suggested by exporters, so that Nepalese exports can compete in international market. This study is the result of such realization. All stakeholders, FNCCI, MOF and ADB should be congratulated on this realization. First of all, I would like to thank them for entrusting me to undertake this important study. I would also like to thank the organizations, individuals and officials who have given their valuable suggestions and opinions in this regard. Dr. Champak Pokharel, Member, NPC and former Team Leader, Establishing Economic Network Project, MOF deserves special thanks for his positive and professional comments and monitoring of the study. Mr. Dipendra P. Dhakal, Team Leader, EPN deserves appreciation for his cooperation. I would like to thank Messrs B. P. Ojha, Secretary General, Dr. Hemant Dabadi, Executive Director, and Kedar Man Singh Shrestha, Senior Tax Expert of FNCCI for providing their support in different stages of the study. I would like to sincerely appreciate my colleagues Mr. Narayan Raj Tiwari, President, CPPD and Mr. Bansidhar Ghimire, Director, CPPD for their suggestions and encouragement to prepare the study. I would like to express my sincere thanks to Mr. Dilli Prakash Ghimire for his excellent professional cooperation without which the report might have not come out in time. Mr. Naresh Pokhrel, Under Secretary of MOICS deserves special thanks for providing latest information on export promotion measures in Nepal. I would like to appreciate Mr. Sabin Nepal for his hard work in the preparation of the report.
Abbreviation ACP ADB APZ BIMSTEC BOOT DDC DOC DOI DOIR DOLTM DOR EBA EPC EPZ EU FDI FIT FNCCI GDP GSP HMG/N ICD IEA LDC LDT MFA MFN MOA MOF MOFA MOHA MOICS MOLD MOLJ MOLT MOWR NCC NRB NTWC PPP RAC RMG SAARC SAFTA SEZ TIA TPC UNDP VAT VDC WTO African Caribbean Pacific Asian Development Bank Agriculture Processing Zone Bangladesh India Myanmar Sri Lanka Thailand Economic Cooperation Build Own Operate & Transfer District Development Committee Department of Customs Department of Industry Department of Inland Revenue Department of Labor and Transport Management Department of Roads Everything But Arms Export Promotion Council Export Processing Zones European Union Foreign Direct Investment Foreign Investment and Technology Federation of Nepalese Chamber of Commerce and Industries Gross Domestic Product Generalized System of Preferences His Majesty's Government of Nepal Inland Container Depot Industrial Enterprises Act Least Developed Countries Local Development Tax Multi-fiber Arrangement Most Favored Nation Ministry of Agriculture Ministry of Finance Ministry of Foreign Affairs Ministry of Home Affairs Ministry of Industry, Commerce and Supplies Ministry of Local Development Ministry of Law and Justice Ministry of Labor and Transport Management Ministry of Water Resources Nepal Chamber of Commerce Nepal Rastra Bank Nepal Transit and Warehouse Company Public Private Partnership Revenue Advisory Committee Ready Made Garments South Asian Association for Regional Cooperation South Asia Free Trade Arrangements Special Economic Zone Tribhuwan International Airport Trade Promotion Center United Nations Development Program Value Added Tax Village Development Committee World Trade Organization
Table of Contents Acknowledgement Abbreviation Executive Summary Chapter I Introduction ....................................................................................................... 1 A. B. C. D. A. B. C. D. E. Context of the Study................................................................................................ 1 Objectives of the Study ........................................................................................... 1 Methodology............................................................................................................ 1 Limitations ............................................................................................................... 1 Background of Export Promotion Measures and Tax Incentives ............................ 2 Present Status of Direction and Composition of Trade ........................................... 3 Potential Exportable Items from Nepal.................................................................... 4 Revenue Contribution of Export Sector................................................................... 4 Present Status of Tax Structure .............................................................................. 6
Chapter III Constraints and Prospects for Export Promotion Particularly through Tax Policy Reforms ...................................................... 9 A. B. C. D. E. F. G. H. Economic Constraints ............................................................................................. 9 Constraints in Policy.............................................................................................. 10 Administrative and Procedural Constraints ........................................................... 13 Constraints on Infrastructure and Logistics ........................................................... 14 Institutional Constraints ......................................................................................... 14 Legal Constraint .................................................................................................... 14 Miscellaneous Constraints .................................................................................... 15 Prospects of Tax Policy Reform ............................................................................ 15
Chapter IV Analysis of Primary Data and Comparison of Export Incentives in Neighboring Countries........................................................... 15 A. B. A. B. A. B. Analysis of The Responses from Stakeholders..................................................... 15 Summary of Incentives Given in Neighboring Countries....................................... 19 Public Private Partnership ..................................................................................... 20 Present Status and Perspective ............................................................................ 20 Recommendations ................................................................................................ 21 Conclusion............................................................................................................. 27
Annex 1 (A): Policy-Action Matrix ..................................................................................... 29 Annex - 2 (A): Exports of Some Major Commodities to Overseas Countries ..................... 36 Annex 2 (B): Exports of Selected Commodities to India................................................... 37 Annex 2 (C): Exports of Some Major Commodities to Tibet ............................................. 38 Annex 3: Annex 4: Annex 5: Annex 6: Annex 7: Annex 8: Annex 9: Annex 10: Annex 11: Bibliography List of Exportable and Potential Export Products of Nepal.......................... 39 Basis of Local Level Tax (Example) ............................................................ 40 Export Tariff Structure ................................................................................. 41 Prevailing Income Tax Rate and Slabs ....................................................... 43 List of Prohibited, Restricted and Freely Tradable Exports as Mentioned in Export Import Control Act, 1956............................................. 44 Response Sheet of Stakeholders ................................................................ 46 Comparative Table of Prevailing Incentives in Some Neighboring Countries. .................................................................................................... 50 Recommendation of Different Business Community and Rac on Export 2061 ................................................................................................. 52 Authorities and Stakeholders Met during the Study .................................... 55
EXECUTIVE SUMMARY 1. Nepalese exporters have been suggesting HMG/N for tax policy reforms and procedural simplifications since a long time. The government now has taken it seriously and initiated the study. The study is a part of Establishing Economic Policy Network Project, MOF with the assistance of ADB and channeled through FNCCI to reform in tax policy for export promotion by building consensus among stakeholders. The study has reviewed particularly the fiscal incentive packages implemented by the government and tried to identify economic, legal, administrative, institutional and policy constraints for exports. It has suggested particularly tax policy improvements with a policy-action matrix. This has also identified prospects for public private partnership in export sector. Export sector of Nepal has modest contribution in total revenue. However, it is obvious that its impact on employment generation, foreign currency earning and creation of backward linkages are significant. Share of the export tax to total revenue (customs duty and income tax) in 2002/2003 was 3.2 percent only. Likewise, contribution of income tax from exports to total income tax was 5.7 percent during the period. Similarly, revenue share of export from customs was 6 percent in this period. Constraints